A month has gone by since the last earnings report for Monolithic Power (MPWR). Shares have added about 2.2% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Monolithic due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Monolithic Power Q2 Earnings & Revenues Beat Estimates
Monolithic Power Systems, Inc. reported second-quarter 2020 non-GAAP earnings of $1.08 per share, which beat the Zacks Consensus Estimate by 8%. Notably, the figure improved 17.4% on a year-over-year basis.
Revenues of $186.2 million increased 23.3% from the year-ago quarter’s figure and surpassed the Zacks Consensus Estimate by 9.4%. The reported figure was also above the higher end of management’s guidance of $167-$173 million.
Strong demand across Computing & Storage and Consumer and Communications end-markets, and a diversified multi-market strategy drove year-over-year growth.
Quarter in Details
Revenues by Product Family
Revenues in the DC to DC segment (94.6% of total revenues) increased 26.1% year over year to $176.1 million. Moreover, Lighting Control (5.4% of total revenues) revenues fell 10.8% to $10.1 million.
Revenues by End Market
Computing & Storage (34.4% of total revenues) revenues rallied 23.3% sequentially to $64.1 million. The market’s solid performance was driven by robust sales of cloud servers and storage.
Consumer (25.6%) revenues improved 27.4% from the prior quarter to $47.7 million, reflecting solid uptake of home applications, gaming consoles, and IOT devices.
Industrial (14.3%) revenues increased 5.4% sequentially to $26.6 million due to strong performance of power devices, partially offset by decrease in sales of security applications.
Automotive (9.5%) revenues were $17.8 million, down 23.7% from the prior quarter. Negative impact of coronavirus crisis-induced shutdowns of major automotive OEMs led to decline in business.
Communications (16.2%) revenues increased 8% sequentially to $30.1 million. The end-market benefited from strong uptake of legacy routers, wireless applications and 5G networking infrastructure related products.
Margins in Detail
Non-GAAP gross margin expanded 10 basis points (bps) from the year-ago quarter’s level to 55.7%. Management had predicted the figure between 55.3% and 55.9%.
Non-GAAP operating expenses amounted to $50.7 million during the reported quarter, up 25.8% year over year. As a percentage of revenues, the figure expanded 50 bps on a year-over-year basis to 27.2%.
Non-GAAP operating income improved 21.3% year over year to $53 million. Non-GAAP operating margin (as a percentage of revenues) contracted 40 bps from the year-ago quarter’s level to 28.5%.
Balance Sheet & Cash Flow
As of Jun 30, 2020, cash, cash equivalents and short-term investments were $512.3 million, up from $489.3 million reported as of Mar 31, 2020.
Monolithic Power generated operating cash flow of $59.3 million compared with $51.4 million in the prior quarter.
For third-quarter 2020, Monolithic Power projects revenues between $200 million and $210 million. Management anticipates non-GAAP gross margin between 55.5% and 56.1%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 15.52% due to these changes.
At this time, Monolithic has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Monolithic has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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